KATHMANDU, Nepal - In a further blow to India's currency, which has been in a downward spiral in recent years, the Nepal government on Saturday announced it was banning the use of Indian rupees in the country.

Rupees have been widely accepted in Nepal until now but that use will be phased out. Only notes up to Rs 100 ($1.30) will be honored.

Specifically targeted in the proposed ban are notes of Rs2,000, Rs500 and Rs200 denominations.

The measure is likely to cause a degree of chaos in the Nepalese economy. Many prices within the business sector are quoted in Indian rupees, as well as the local currency. Cash reserves, savings and the storage of cash in Indian currency by individuals is widespread.

India is Nepals largest trade partner and supplier of consumer goods.

Many transactions in Nepal are concluded in Indian currency. There are many Nepali living and working in India that bring their hard-earned wages in rupees back to their home country.

The flourishing tourist trade from India to Nepal too is underpinned by the use of rupees, which is seen as a major incentive for Indians to visit the country, particularly as the value of the rupee against most other countries has been plummeting for years.

Nonetheless the ban is likely to take effect soon.

The government has decided not to use, carry and keep the Indian bills of 200, 500 and 2000 denominations. The government will soon issue a formal notice in this matter, Nepals Minister for Information and Communications Gokul Prasad Baskota said Saturday.

India implemented the use of Rs2,000, Rs500 and Rs200 bank notes two years ago, after withdrawing from circulation notes worth Rs500 and Rs1000.

Nepal's government protested at the time, and earlier this year Nepal Premier K.P. Sharma Oli promised to discuss the matter with India.